Tax return 2021 – Don’t forget these deductions if you’re a cross-border commuter in Switzerland

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Foreigners, who are taxable in Switzerland, give money away by not claiming their tax deductions, in the tax return 2021. This article shows, that with a helping hand, this is very easy and which deductions are possible.

Foreigners who move to Switzerland are, at least initially, subject to the wage tax system, i.e. withholding tax on earned income. This system has considerable advantages, but also some pitfalls.

In many cases, the situation is corrected by the fact that a tax return must also be submitted, which contains the actual income and deductions.

Who does not have to file a tax return 2021 in Switzerland

If you are subject to withholding tax and your annual income from employment is less than CHF 120,000 (in Geneva even less than CHF 500,000) or if you are resident abroad, it is not necessary or even not possible to file a tax return. This applies, for example, to weekly commuters who work in Switzerland.

A Cross-border commuter in Switzerland is subject to withholding tax and often in such a situation the withholding tax deducted is accepted as a final charge. This is not really wrong, as the tax rate provides for standard deductions (e.g. insurance deduction, deduction of professional expenses, etc.), which is why an additional tax deduction is only allowed in exceptional cases.

However, such exceptional situations occur much more often than one might think, which is why it is advisable to claim additional deductions.

7 Tax deductions, which are often missed out

As mentioned above, the standard deductions are included in the withholding tax rate.  On the other hand, there are costs that are only incurred by certain persons, so they are not included in the tariff.

The most important ones are:

  1. 3a pillar (Säule 3a) contributions or repurchases into the 2nd pillar in Switzerland
  2. Maintenance payments
  3. Costs for weekly commuting (double accommodation, transport)
  4. Deductions of debt interest
  5. Donations
  6. Training costs
  7. Childcare costs

Whoever pays into the pillar 3a in Switzerland can look forward to tax savings of approximately CHF 1,000 by paying in CHF 6,000 per year. The maximum pillar 3a contribution that can be deducted in the 2021 tax return is CHF 6,826 with a pension fund connection and even CHF 34,128 for self-employed persons without a pension fund.

This tax advantage is only available to those who declare the payment in their 2021 tax return. Not only are there no advantages, but it can even lead to a partial double taxation, because the money is (again) taxable when it is withdrawn.

This happens because pillar 3a contributions are taxed again at the time of withdrawal, but at a lower percentage. If you have not declared the payment in your tax return, you will be taxed twice by the state.

If such costs are incurred and cannot be claimed via a tax return, it is important to make use of the so-called withholding tax adjustment procedure (Quellensteuerberichtigung).

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The withholding tax adjustment for a cross-border commuter in Switzerland

The aim of this procedure is to provide a simple way of achieving taxation that reflects actual financial strength. Most cantons provide an overview on their homepage of which costs can be claimed and which documents are required. As an example, the Zurich tax administration provides a form that is structured as follows:

  • Personal data
  • A summary of the income
  • List of specific deductions

All allowed deductions are listed, including information about the amount already included in the rate, the conditions that must be met to receive the deduction and the supporting documents that must be presented.

If someone who pays taxes in Zurich has childcare costs, these costs can be claimed through the withholding tax reporting procedure.

An amount for such costs is not included in the tariff. The tax authorities require the following documents: proof of payment, copy of the birth certificate with the names of the parents and a list of the costs.

The Procedure

Anyone wishing to declare deductible expenses must submit the application before 31 March of the year following the tax year (e.g. 31 March 2021 for the tax year 2021). This deadline cannot be extended; a few cantons sometimes offer exceptions.

In order to take advantage of the benefits, the completed application must be sent to the tax administration with all the necessary documents. It may be that additional information is required, but in this case the authorities would send a request.

Such a procedure can take two years until the authorities make an assessment and make the payment. However, you have nothing to lose and if the costs are high, this can have a very positive effect on your finances.

Tax return 2021 – The pitfalls

The applicant can only win in the withholding tax reporting procedure. Additional deductions are claimed – if they are accepted, the tax burden is lower, which leads to a refund, if they are not accepted, there is no additional tax.

However, the claim for a withholding tax adjustment may be disadvantageous in the following circumstances:

  • From 2016, the costs that can be deducted for commuting have been reduced. Those who drive a company car run the risk that new regulations may lead to even higher taxable income.
  • There are additional rules that may limit the deductibility of some of the items mentioned above: If both parents work, they can claim childcare costs in many cantons.

So what’s the conclusion if you’re a cross-border commuter in Switzerland?

Those who do not file their tax return in 2021 may miss out on lucrative tax benefits. Especially with professional help, it is easy to correctly declare all cost items and significantly increase the chance of getting the desired tax deductions approved.

Not sure whether all deductions have been stated correctly and whether you can even save up more? Simply upload your files and let ajoodas tax experts fill out your tax return for you.

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